Eurchf - Looking Down At 1.1372

Trading opportunities on the currency pair: since the euro’s collapse in 2015, it’s been trading within the boundaries of the 3-year B-B channel. Considering that the upwards impulse is running out of steam, my forecast is projecting an exit from the C-C channel and a decline to 1.1372. I’m expecting a downwards correction amounting to 38.2% of the upwards movement from 1.0625 to 1.1833.

Current situation
I haven’t done an idea on a cross with the franc since January 2015, when the Swiss franc jumped sharply against all other currencies. On the 15th of January, 2017, in latest fx news the Swiss National Bank (SNB) took everyone by surprise when they declined to protect the exchange rate against the euro at 1.20 and lowered the deposit rate to -0.75%.

A lower limit was set for this cross pair in September 2011 in order to protect against deflation and to strengthen the position of Swiss exporters. For several years, the regulator intervened when necessary to keep the exchange rate above 1.20. There was no limit on the number of times the bank could intervene, which was good news for speculators, who would earn from buying euros as the rate approached 1.20.

After the SNB’s abandonment of the euro cap, the EURCHF rate dropped by 19.6% to 0.9651. 3 years later, the rate has nearly returned to 1.20, marking a 22.6% increase to 1.1833.

Fig 1. EURCHF monthly chart. Source: TradingView

I’ve included the monthly chart on this instrument so that you can see the franc’s upwards trajectory since the beginning of 2015.

The pair is trading within the 3-year upwards B-B channel, which is embedded within the 6-year A-A channel. There’s a resistance zone between levels 1.1877 and 1.2050. The annotations from the monthly chart are also present on the weekly chart below.

Fig 2. EURCHF weekly chart. Source: TradingView

Since the end of February 2017, the EURCHF pair has been in an uptrend. We can see from the chart that since August last year, this trend had slowed down. Last week, buyers encountered a resistance level at 1.2833. The exchange rate declined by 1.61% to reach 1.1601 over the course of the week.

Traders opened long positions of the franc, ignoring comments by the SNB’s chairman, Thomas Jordan, who announced that the central bank would intervene in the market if necessary. The franc, along with the yen and gold, became safe haven assets in the wake of the dollar’s collapse last week. This decline was initially triggered by the US government shutdown and intensified by US Finance Minister Mnuchin’s comments that a weak dollar was good for the US.

Taking into account the fact that the upwards trend has slowed down; I expect to the pair exit the C-C channel and drop to 1.1372. Sellers are in control for the time being. I don’t see the trend being broken, though, at least no further than the 38.2% correction of the upwards movement from 1.0625 to 1.1833. If the correction amounts to 61.8% after exiting the C-C channel, our target will drop.

Swiss overnight rates ranged 4 points, 0.23 to 0.27 from February 2017 to February 2018. Overnight Swiss Money trades ranged 0.11 from minus 0.18 to 0.05 while 3 Month Libor ranged from 0.25 to 0.27. Libor OIS is located far below as is the norm for financial price protection at 0.01.

From above, as the BOE finalizes its new system in April, welcome to the new GBP, welcome to the new DXY when US markets close. Markets are heading to interesting developments.

The purpose for USD/CHF as it trades in small ranges is to maintain a location to trade below EUR/USD and GBP/USD but above AUD/USD and NZD/USD. Against USD/CAD and USD/JPY, the USD/CHF ranges trade below both. Not a problem exists in USD/CHF as it operates correctly but it lacks range and ability for the big move. As a market instrument, USD/CHF follows rather than leads. From the SNB perspective and due to a small economy, USD/CHF just wasn’t designed to move.